IRBA vs SANAS debate – EconoBEE Newsletter – 10 July 2012

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IRBA vs SANAS debate

Who will give you a better verification? IRBA agencies or SANAS agencies? A very interesting debate is brewing. We at EconoBEE were quite pleased when IRBA was approved as a regulator. Now 6 months after IRBA started approving auditors, we ask the question, has it worked?

SANAS (South African National Accreditation System) is the long time authority on accrediting BEE verification agencies. In February 2009 SANAS accredited the first batch of BEE verification agencies.

A key strength of SANAS is that they follow ISO standards which means a strong procedural based system. An ISO standard is used to accredit agencies. The agencies need to create a detailed policy manual which lays out an endless amount of procedures. These procedures become the standard and business had to bear with it if they wanted a verification.

Although good procedures were important the application of those procedures has most likely been the biggest stumbling block for businesses wanting to be verified because of the vast quantities of somewhat useless and irrelevant data required.

Common examples include

  • meeting agendas allocating 1 minute for an introduction, 2 minutes for a process overview etc…

  • Signing into and out of the verification meeting

  • Sampling 100% of data on some elements

  • Requiring certified copies of data – even if they are faxed through at a later stage

  • Forcing standardized documentation at the expense of professional judgment

    • An independent letter for SED spend

  • Requiring employee interviews even for employees who were not present at the end of the measurement period

  • 25 day review period

Most business would agree that consistency was important however not at the expense of large quantities of admin work and a frustrating verification process.

A weakness of both organizations (SANAS and IRBA) is their inability to issue interpretations. They state that this is the domain of the dti – correctly so, but when there are inconsistent approaches to the same problem, they need to be able to decide on the single consistent approach and require that all agencies follow that approach. It could be said that they are hamstrung by the dti’s reluctance to issue communication.

Policy manuals designed by the agencies themselves differs from one agency to another. This creates further inconsistency amongst agencies.

SANAS as a standards organisation encourages identical actions to reach identical results. This works very well in a medical environment where for example temperature or weight is important but cannot change. However with a subjective decision making process like a BEE verification you cannot rely on identical actions as context and reason can cause varying applications of similar situations. As a result the agency checklist to conduct the verification becomes rigid with no variations and no room for discussion.

The minister has indicated, via the proposed B-BBEE amendment Act that IRBA will become the sole regulator. SANAS will therefore be phased out and SANAS accredited agencies will need to be approved by IRBA.

We believe in as little as 6 months from now IRBA agencies will outnumber SANAS agencies 2:1. This will mean that the verification industry will have three times more agencies capable of issuing certificates than it had at the end of 2011.

IRBA (Independent Regulatory Board for Auditors) on the other hand have members who have been conducting audits for years. This is an industry already populated with highly qualified audit professionals. From January 2012 IRBA has been approving members to conduct BEE verifications.

Apart from IRBA members having considerably more years of audit experience they have also developed a concept of professional scepticism. Through that methodology we would expect auditors to ask more leading questions of the data they audit and if they feel that something is not perfectly auditable then they will delve deeper and gain a fuller understanding of the particular transaction.

By comparison auditors will not require the same types of documentation or nature of documentation as SANAS accredited agencies require.

For example

  • If an ID of an employee needs to be verified they will use any of the available forms of ID.

    • They will also inspect the original in the same way they do in an accounting audit and sign an acknowledgement confirming that they have seen the required proof.

  • Sampling of data will use an appropriate sampling method and professional judgment to determine the accuracy of information

The IRBA Peer review system when used is an extremely technical and demanding process which will keep audit firms inline with requirements.

IRBA agencies do not have an extension of scope process which allows them to issue sector codes instantly. Although EconoBEE’s view on sector codes has not been positive it is quite logical to allow an agency to issue a scorecard on a sector immediately due to their similarities. The similarities coincidently is one of the many reasons the dti allows a sector code to be gazetted.

Lack of BEE experience. Only a small number of IRBA approved auditors have B-BBEE experience. The course required to be completed is far too short to fully equip the auditors with the knowledge and confidence to conduct an accurate audit.

IRBA does not seem to see itself as anything more than an approval body. If the auditor has passed the prescribed course, they automatically become approved. However there is a complaint procedure you can lay against auditors.

Capacity (is both a strength and weakness). Most IRBA agencies have not done many BEE verifications. As a result we can expect a prompt service from more senior members of the audit firm. However even though you might have a senior member of the firm you may still not get good service due to their inexperience with BEE verifications.

IRBA will more than likely become the sole regulator. Pressure from companies will force IRBA to take a more pro-active approach to their members’ verification. It may be that they will have more success with getting the dti to pronounce on interpretation and take action, via the proposed BEE Commissioner.

It should be remembered that both regulatory authorities have the same requirements. In terms of the notice appointing IRBA as a regulatory authority, they both have to follow the R47/2, the Verification Manual and all other notices and gazettes. In theory, but not in practice it should make no difference which regulatory authority accredits a verification agency!


Ready for BEE Verification?

Prepare for your next BEE Verification

A successful BEE verification is the key to business success. With the emphasis that is now placed on having a good BEE status the question has changed from “do I need a BEE status” to “what level is required or will my clients accept this”. This fundamental mindset shift from “do I” to “how good” has now virtually guaranteed that a good level of compliance directly impacts on the amount of business a company is awarded.

On the other hand ensuring that your company is successful during its BEE verification can be stressful and time consuming. Dedicated staff members should be involved heavily in this process. They need a good understanding of B-BBEE and of the verification process. In-particular considering how often interpretations within the legislation change, how different agencies have vastly differing interpretations and that when errors are made, ensuring that the correct procedures are followed.

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EconoBEE Newsletter
10 July 2012

In this issue

  • IRBA vs SANAS debate

In other news

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